As many of you know, I rented my house out last year and spent the year traveling and working from different places. It was an amazing experience. I engaged more with religion, meditation, art, architecture, and nature more than I do in my “normal” life. The trip was great for my health. I walked, explored, swam, and hiked; coming back lighter and healthier than when I left. Most importantly, as is typically the case when I work from other countries, the quality, quantity, and creativity of my work improved. This is a consistent trend I’ve noticed over the past half-decade as I’ve regularly worked from all over the planet.
As a result, I’ve made the decision to do it all again. A new family will take over my Westport home starting July 1 and I’m expecting to spend a lot of time in South America and in Asia. (Last year, I had a travel plan as well which bore no resemblance to the actual places I visited so please don’t be surprised when I end up doing different things in different places.) I’ve upgraded all of my travel technology, so while my bag will be a little heavier, I’ll be traveling with mobile office equipment that is more-than-capable for my needs and a step up from anything I’ve had in the past.
Unfortunately, there’s going to be a short delay before I can depart. During my travels, I got a bilateral hernia. That’s a small tear in the abdominal muscle on each side. It can be serious if left untreated, but surgery now should be minimally invasive and have the fastest possible recovery time. It’s an outpatient procedure which will take place this Friday. I expect to be fine and should be fully re-engaged with work by the weekend.
Due to the surgery as well as my need to prepare for my trip in advance (post-surgery, I won’t be able to carry my bag for about a month), please expect written content this week and next to be light. I am monitoring the markets, economic news, stock prices, and the portfolio, and am only reducing writing briefly while I get everything else in order. So, I’ll be on top of the portfolio even if I communicate less for a brief time.
One thing I’ve written about consistently this year has been the unreliability of news; particularly relating to Iran. Last week, within one hour, I saw a report that in-person negotiations between the US and Iranian officials had gone well. This report understandably said that the fact that everyone was in one room talking was a positive sign. Shortly afterwards, I read that the Iranians had stormed out of the room without agreeing to anything and we could expect the US to start launching infrastructure destroying missiles. Following that, there were reports that talks had gone well and that the US thought they were making progress towards an agreement. This last part was represented differently by Iranian officials who refused to confirm talks had gone well or that they had agreed to the points the US had said were resolved.
These kinds of yes/no/yes/maybe stories have been a consistent part of the narrative since the first shots were fired and make accurate analysis impossible. I further think that regardless of how either or both sides declare victory at the “end” of hostilities, that there isn’t enough overlap to ensure a lasting peace. The US wants/needs an Iran that stops enriching uranium to (near) weapons-grade, that won’t threaten international waters, and that won’t be a State sponsor of terrorism. I believe the Mullahs won’t agree to any of that, or if they do agree, it will only be a delay tactic while they wait for a better time to pursue the same long-term goals. Right now, it’s hard to see a situation where there’s a lasting agreement with good intentions to follow-through on both sides. I hope I’m wrong about this.
The big market news over the past few days has related to expected Fed rate hikes and the impact on the big tech stocks. I’ve explained many times that because inflation is being driven by Congressional overspending, there’s little the Fed can do. I don’t think 25/50bp of hikes or cuts changes long-term bond rates.
However, expectations for higher rates have caused declines in some of the high-multiple tech stocks. Another reasonable explanation is these stocks are up a huge amount and a 10% – 20% retracement still leaves the stock prices up significantly over the prior 1/3/5 years. For the most part, the fundamental case hasn’t changed.
The one thing we are watching is news on the AI models coming out of China. We’re a year and a half past the DeepSeek scare which resulted in nothing significant. Recent trends indicate that China has closed the gap between their best models and the best US models. Right now, the US models are superior; however, the Chinese models are cheaper to train and run. For many AI applications, working with a model that’s 90% as good and also 50%+ less expensive would be welcome. This doesn’t necessarily mean that companies like Nvidia, Intel, AMD, or Micron are in trouble. Usually, when something tech-related becomes cheaper, demand for that thing skyrockets. Still, the above explains some of this week’s volatility and is something DKI is watching and evaluating on a regular basis.
As always, feel free to reach out with any questions or comments. Thank you!
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